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Treasury Secretary Henry Paulson's latest plan for the $700 billion bailout fund has many economists responding like Seinfeld's Soup Nazi, "Next!" They say the idea of using funds approved by Congress in early October to stimulate credit card and auto lending is ill advised and unnecessary...
...What's more, industry watchers say credit card and auto lending has actually held up quite well despite the credit crunch. According to market research firm Synovate, the average consumer probably has a higher limit and therefore can spend more on their credit card than they could a year...
...switch. The Treasury Secretary said he was backing away from using a large portion of the $700 billion Troubled Asset Relief Program fund to buy up troubled mortgage bonds. Instead, Paulson said he was more interested in helping the currently stalled market for financing among other things credit card and auto loans...
Still, not everyone agrees that the situation is on the brink of despair. "The credit-card industry is being likened to what has happened in the mortgage industry," says Greg McBride, senior financial analyst at Bankrate.com, a personal-finance website. "I don't see how the two should be mentioned in the same sentence." He reasons that even if credit-card defaults reach a record high of 10% of the $970 billion in revolving debt, a chunk of that total will get paid off in full every month, which would result in an aggregate default of less than $100 billion...
...think the credit-card industry will implode," says Ronald Mann of Columbia Law. Issuers have been taking steps to mitigate risks like scaling back credit lines and closing out accounts for cardholders exhibiting distress. "Sure, they're likely to have a bad year," he says, "but lots of people will...